At the time this article is being written, US health care "reform" is receiving the bulk of US media attention. Despite recent focus on health care insurance specifically, much broader and far-reaching health care reform is progressing globally across industry sub-sectors. While country-specific solutions are as varied as the different health care systems, common design elements which will affect the biopharma industry are emerging and include: more stringent requirements for reimbursement, increased focus on affordable options for consumers and greater constraints on marketing and selling approaches. Complicating this trend is the growing number of patented pharmaceutical products which are less differentiated from those of competitors with similar compounds. Expansion of services proposed in large countries like the US and China suggest that there is likely to be an increased number of patients global health care systems. If these programs follow in the footsteps of their European and Canadian counterparts, cost controls aimed at lowering pharmaceutical spend per patient and intensified product competition (often with generics) are likely net impacts on the industry. (See Figure 1 for a summary of these drivers) This article will focus on the implications for the global biopharma industry as a result of the changing industry environment, including likely continued global health care reform.
The most important changes for the current biopharma business model are likely to be:
The tremendous life-saving and life-changing value of pharmaceuticals is often overshadowed by concern over rising costs. Industry critics point to drug prices increasing faster than the rate of inflation, but do not always consider that pharmaceuticals represent only 11% of total US health care costs.
Pharmaceuticals support cost savings in other parts of the health care system that constitute a greater share of health care spend by reducing the need for surgery or lengthy hospitalizations for many conditions, including childhood infections, diabetes, heart disease and mental illness. These benefits result from the continuing development of new drugs addressing both chronic diseases such as diabetes, cancer and depression and acute conditions such as infection, flu, heart attacks and strokes. Cancer is a profound example of the benefits produced by investing in research and innovation. The passage of the National Cancer Act of 1971 produced a critical wave of scientific research funding that lead to the launch of breakthrough cancer drug Taxol in 1987. The cost implications of drug therapy taking the place or delaying some costly surgeries are easy to see in a single cancer survivor. What is harder to quantify is the quality of life benefits, such as increased years of a productive and healthy life and a reduction of disease complications. We believe an ideal reform program, which includes the biopharma industry, should therefore balance cost control, important for increasing access to health care, and innovation, important for improving the quality of health care.
While innovation and cost control are not mutually exclusive, they require thoughtful consideration and a spirit of compromise. In the health care reform efforts, the dual considerations are obscured by a tendency to separate support for these objectives. In the US, an increase in funding for basic research supported by the National Institutes of Health was a part of the Economic Stimulus package while separate Health Care Reform legislation focused on improved drug costs for Medicare Part D recipients. In Europe, the Institute for Medical Innovation (IMI) operates to spur biopharma industry investment as individual governments seek more aggressive drug contracting and pricing terms. As a result, the critical balance between innovation and cost control is yet to be determined at the policy level and, more importantly, within the boardrooms of pharmaceutical companies. (See Figure 2 for a global sampling of these initiatives)
Like the overall health care system that it supplies, major biopharma organizations will be challenged to find the right mix of investment in innovation while continuing to emphasize cost control. Complicated by the flurry of global activity, the emerging industry environment will demand improvements in three (3) main areas: 1) Knowledge Management, 2) Resource Management and 3) Information Management. Each component is discussed separately below, but it is important to note that they may overlap in execution.
For too long, there has been an unfortunate perception that pharmaceuticals are a negative factor in the health care cost equation. Globally, drug therapy will play an increasingly important part in supporting access to health care as the population ages and life threatening and disabling diseases continue to be prevalent. An increasingly mobile world will also rely heavily on the technology of vaccine and drug development capability to rapidly respond to potential pandemics and other widespread diseases. To prepare for these changes, both private industry and political representatives must consider the tradeoffs of measures that impact the industry's capacity for scientific advancement and economic benefit as they seek cost control.
While the tremendous life-saving and life-changing value of innovation in pharmaceuticals is often overshadowed by the cost debate for those in the biopharma industry, the good news is that only a few, relatively minor items are in the current legislation. The current level of attention on health care reform is an opportunity for the Pharmaceutical industry to work for positive change - change that does not diminish the significant societal and economic benefits of this industry.